Michael Staton talks to entrepreneurs about surviving early stages, managing runway, and raising money. He breaks down pre-seed, seed, and later rounds, what investors want to see (traction, team, MVP, advisors), typical funding sizes, and when to actually raise.
Chapters
So, your number one objective as a company is to not die. How many of you have successfully not died yet? OK. This is good. Yeah. Don't die. So I've got kind of two, mixing two metaphors, right. So the first is a canal. If you're gonna go the venture capital route, how many of you want to raise venture capital?
OK.
OK. OK. How many of you are pre-seed? Pre-seed.
Pre-seed.
Yeah. OK. So, anyway, essentially, like, as you move through and talk to different investors, each set of investors has a set of expectations as to what you need to have achieved before they're willing to invest in you. And even then, they still invest in 1 out of every 100 companies.
Right.
So, anyway, but then once they invest in you, essentially, it gives you, it floods the lock with water, raises your boat. Then you have to build a better boat before you get to the next lock, right. And then you can move to the next level. So that's kind of the venture capital game. Once you take venture capital, you tend to be in this game, and it's really hard to get out. Because that's just the way, It works. The other one is runway. So, most companies, when they come in, they have a certain amount of cash before they're dead. The first thing that I want to talk to them about is, how long is your runway, right? What are we talking about? Do you have 5 months to pull this off? Do you have 9 months to pull this off? Do you have 24 months to pull this off? I got a note from one of my seed investments. They had to pivot, and they were 6 people, and they went ahead and let go of 3 people, and now they have 40 months of runway. Woo-hoo! Don't have to worry about them for a while, right? Most companies don't manage their runway effectively. And this is stolen from Paul Graham. You know, in the early phases, your inspiration is to be a cockroach. survive on nothing, spend nothing, and just stay alive through the nuclear winter that is getting a company off the ground. All right, any questions at this point? Did I answer any?
Yuri, on— Yeah.
Yuri, on which stage do you guys invest? Yeah, we invest primarily in Series A, Series B companies, though Most of the companies we invest in are seed, but that's just— there are a lot more seed companies. I mean, it's a funnel. The seed and the pre-seed stage, is there any users? We don't have any users. Yeah. Hold on one second. Let me see here. File, Open Recent. Where is this? Hold on one second. I actually prepared something to answer this, and I don't have it pulled up. So let me figure this out.
All right.
It's been great so far, though.
Yeah.
Yeah? Is this helpful? Yeah.
Yeah.
Could you send the slides to us somehow? Oh, yeah. Yeah, no problem.
Thank you. OK.
So, so all this is helpful so far, yeah?
Yeah.
OK. How helpful?
Very.
Numerical. Yeah, yeah. Top half of speakers?
You're in the 1%.
I'm in the top 1%. Good. Okay. All right. All right. So, pre-seed accelerators and angel investors. What are we looking for? What expectations prior to this funding round? Differentiated vision and value proposition. Large opportunity. Credible but incomplete team. Credible and trusted set of informal advisors. Right. Goals for the next funding round. Minimum viable product. Whole team. Feedback from customers or learners, because we're in education. Early signs of adoption. Venture capital firms generally do not do pre-seed investments. When they do pre-seed investments, there's often a personal relationship involved. So either they've known the entrepreneur for a while and this is the second company that they're on, or perhaps a little more unfairly, this is my friend's son or some kind of weird privilege perpetuation machine. And then every once in a while you'll get a VC that's just been looking for a very specific opportunity for a long time, and this is the first person that's come along in that feels like they can pull it off. So sometimes you get that as well. And we have made— we probably in this fund have made 3 pre-seed investments. And in all of those circumstances, it was an opportunity we had been looking for. It was a founder that we knew. And they had a whole team. Yeah?
From the VC side, from pre-seed and seed, what's the ask generally?
What do you mean, what's the ask?
Like, what are you asking for? As equity in return, or are you asking for just the MVP, or what?
So, in almost every round that you do, investors are coming in and buying between 15% and 30% of the company. Right? And that's in almost every round that you do. That doesn't mean that we say we want 15% to 30% of your company. That's just what the total investment size will do. Right? And so, you will keep control of your company probably through Series B or C. Unless you are, have your top 1% of companies in terms of growth, and then at that point you really dictate the terms to your investors. And then there are also weird things that lawyers can do where you end up with more voting rights and control of the board even though investors own your company. Yeah. Though you have to be really, really good to pull that off. So I don't recommend trying to pull it off. You know, often pre-seed and seed are done on convertible notes. So, they're not even necessarily buying a percentage of your company. They're just saying, here's some money and this should convert at a valuation at a future stage. So, seed, pre-seed is generally $100,000 to $500,000. Seed is $250,000 to $2 million. Seed funds, micro VC, angel investors. They're looking for demonstrable traction, ability to recruit exceptional people, signs of iteration speed, syndicate of interested and reputable investors and advisors, early signs of adoption. What they want you to achieve is notable growth that curves upwards, outstanding customer or learner feedback, recruit key team members, fast iteration speed, define and measure key performance indicators. Anyway, we could kind of keep going, but that's, that's pre-seed and seed. Does that clarify what people are looking for, more or less?
Would you ever, like, most of us are probably pre-seed, but some of us might be able to reach the goals of seed.
Yeah.
Would you encourage us to do that? Would you rather encourage us to be exceptional in the pre-seed goals than Instead of trying to go for what the seed goal was in terms of what you're looking for?
I think it totally depends on, it's definitely a case-by-case circumstance. I would say in general, entrepreneurs try to raise money before they're ready, and it's a waste of a lot of people's time, including your own. So, what I would say is try to make sure when you're walking in the door, you're top of class of companies at your stage.
